The Federal Government insists that the housing provisions of its latest budget will finally make the Australian dream more accessible, especially for single mothers, but not everyone is convinced.
“We know that so many single parents use so much of their income on rent and construction that filing is so much more difficult for them with children’s claims,” Women’s Economic Security Minister Jane Hume told the day before the budget.
“It is therefore a question of removing the obstacles to the constitution of this deposit and of giving a hand to those who need it most.”
The “it” she was talking about was actually two bars.
The former offers loans to eligible single parents for new or newly built homes with an initial deposit of just 2%, with the government guaranteeing up to 18%.
The second is an extension of the first home loan deposit system that allows first-time buyers to build or buy with a deposit as small as five percent.
Market analyst Eliza Owen says the government’s overall strategy “aims to help first-time buyers overcome the deposit barrier, while protecting home values.”
And this is where the catch lies.
Loans secured on two percent of deposits will help up to 10,000 single parents, 64 percent of whom are moms, to get their foot in the door.
But mortgage lenders will still need to be able to pay full monthly mortgage payments at market rates, said mortgage specialist Martin North.
“If you borrow a 98% loan, your repayments are calculated at 98%, not 80%. This is something a lot of people have missed.”
Banks also tend to slightly increase mortgage prices on secured loans, North added.
“People might think ‘whoopee, I can get a smaller deposit’, but the banks will, of course, still have to do a market-based assessment of people’s ability to repay.”
Low deposits mean more debt, Ms. Owen said.
“More debt means more interest payable over the life of the loan.”
A 20% deposit loan at a 2.4% interest rate, for example, would earn about $ 121,000 in interest over 25 years, while the same borrowing on a 2% deposit would be about $ 145,000. of interest.
Mr. North goes further. Government initiatives regarding deposits, he said, are more optical than concerns about homelessness and the entry of more people into the market.
“It’s really about helping, for example, the high-rise construction industry because they have a massive oversupply of inventory,” he told AAP.
“A large number of single parents (for whom the government guarantee is intended) will not be able to afford to buy a house and will therefore buy an apartment.
“My theory is that it is more about protecting the construction industry than the individuals.”
Meanwhile, real estate prices continue to rise.
Sydney recently ranked third in Demographia’s international survey of 92 major unaffordable housing markets. Melbourne was sixth and Brisbane, Perth and Adelaide were all deemed “severely unaffordable”.
“There was not insufficient coverage in the budget for the third of Australian households who are less able and less willing to speak out about their situation,” said Mr. North.
“Many will be tenants who try to enter the real estate market and see their financial pressures increase and the only way out is to accumulate more debt – a major policy mistake.”
According to Treasurer Josh Frydenberg, however, “the government understands the importance of owning your own home and the important social and economic benefits that ownership offers.”